Outcomes Based Philanthropy
Social service providers and NGOs have long relied on government funds to help improve the lives of their beneficiaries. Yet, social issues continue to mount, straining budgets and limiting reach. Traditionally, philanthropists have filled the gaps by providing resources as they aim to impact the world expecting nothing in return except for positive social change. This practice has meant charitable givers donate their funds hoping for the best outcomes, with little control over how effectively these funds were used, or how effective the program ultimately is.
As Impact Investing approaches the mainstream, philanthropists now have the opportunity to shift the focus of their resources from "blind" funding of social programs towards paying for social outcomes only once they have been verified as achieved. By engaging in philanthropy according to the "Pay-for-Success" model, charitable funds are given only when target social outcomes are achieved, and if they are not, investors in the social program bear the financial loss. This is the concept of "Outcomes Based Philanthropy.”
What is Outcomes Based Philanthropy ?
This "Pay-for-Success" approach to addressing social issues is the basis for over a hundred Social Impact Bonds worldwide. This model has three main components: the investor, the service provider and the outcomes payer. Often, the outcome payer is a government or other organization that stands to benefit financially from the success of a social initiative. One example is the cost savings to HMOs that result from reduced healthcare expenditure on diabetes. In some cases, the outcomes payer is a different stakeholder, such as an insurance company, or university.
Outcomes Based Philanthropy is a novel concept that SFI is introducing to the world of philanthropy. It is when a philanthropic organization commits to paying predetermined amounts of money in return for specific social outcomes that they would like to see achieved by a service program. Here, the philanthropist plays the role of the outcome payer, agreeing to pay for the achievement of social outcomes that are in alignment with their organization´s social mission. This commitment opens the door for private investors to invest in social initiatives, thereby promoting performance management and rigorous measurement of impact while ushering in new sources of capital. This affords philanthropists greater agency and security in realizing their visions, by focusing their to charitable funds towards specific, measured outcomes they desired, once they have already been achieved.
Outcomes Based Philanthropy innovates the way charitable contributions are made to solve social issues. Philanthropic organizations can now disburse charitable funds with complete confidence that they are going toward successful outcomes, with verification from independent evaluators. This does away with the traditional concerns that philanthropists face in donating funds to initiatives that may not succeed, while enabling investors to generate financial returns alongside positive social impact.
For a detailed overview of Outcomes Based Philanthropy, click here.